NEW ZEALAND’S ECONOMIC POSITION

Nelson Evening Mail, Volume LXI, 7 June 1927, Page 4

NEW ZEALAND’S ECONOMIC POSITION

THERE has been much stocktaking of New Zealand’s economic position since the adverse trading conditions became so marked throughout the country. It was inevitable that the lower prices obtained for produce would bring about a shortage of money unless expenditure was curtailed to an equal extent. For the year ended June, 1925, New Zealand’s exports exceeded imports by £6,500,000. For the year ended June, 1926, imports exceeded exports by nearly £6,000,000. There was thus a turn against us in the balance of trade amounting to nearly £12,000,000. This was bound to have effect on the Dominion’s finances. Professor A. H. Toeker mentions these figures in connection with an explanation of the rise in the bank rates given in the “Lyttelton Times.” lie summarises the relations of deposits and advances in the bank returns for the March quarters if the last three years as follows:

£. Millions. Advs. Ex'ss E.y'ss March Total and of of Quarter. I)eps. Discts. Heps. Advs. 1925 .... 53.1 43.7 9.4 1926 ... 51.3 48.3 3.0 1927 ... 48.5 50.8

The chango in tho bank figures, totalling about £11,500,000, is the sarnie, approximately, as the change m tho balance of trade. Professor Tocker points out that it is convenient, and approximately true, to assume for tlie purposes of explanation, the “invisible items’’ such as payments by New Zeakmd of interest due overseas, and payments to New Zealand of loans raised overseas, usually balance one another. These concentrate attention on the trade item*,. With this assumption,, an excess of New Zealand exports on imports means an excess of receipts over withdrawals, and therefore an increase, in both the hanks’ overseas balances and in customs’ credits in New Zealand ; while an excess of imports over exports means an excess of withdrawals over receipts, and consequently a decrease in both the banks’ overseas balances and in customers’ credits in New' Zealand. Professor Tocker continues:—

For the 1925-26 export season prices of our exports were on average nearly 20 per cent, lower than for the previous season. For the year ended June, 1926, almost, exactly the same volume of exports brought, more than 10 millions less than for tho year ended June, 1925. But meanwhile, imports ordered on the anticipation that the previous year’s brisk internal trade would continue, wore enmting into the country, and for the year ended March', 1926, were 3 millions higher than in the previous Conse-

•ii uont.ly the 1925 favourable balance pi trade of about 6 millions turned, in 1926, into an unfavourable balance of about, the same amount. Payment for this unfavourable balance brought, after a time, a reduction in bank I’iun.ls hold overseas, about which we } ltlV o no certain knowledge, and the reduction of deposits and increase of advances in the Dominion which is the direct cause of the higher Bank rate. ... . 'Hie effect of the higher rate will bo to decrease bank advances in New Zealand, and thereby to decrease, for the tin e being, the amount of purchasing power in the hands of the public. This will tend ,to bring about tighter money conditions, less buying, slacker trade and less imports. Through this means the contraction of import values to a level corersponding with export values will lie hastened. In Professor Tocker’s opinion it will he further hastened by the psychological effects of the rise in bank rates, which offer a clear warning for those who have failed to read the signs in the trade and hanking returns, that economy in spending is imperative.